Lions Gate (LGF) reported a surprise Q1 loss of $64.1M or $0.54/share compared to earnings of $36.3M ($0.30/share) last year — note that adjusted earnings of a net loss of $13.7M ($0.10/share) missed analyst expectations of a profit of $0.04/share. The cash flow picture is not pretty either as the business was kept cash flow positive by a $243M senior revolving credit facility. While Carl Icahn continues to battle for control of Lions Gate, my message, which I’m sure I share with other individual shareholders, is “show me the money.” (Click hyperlink for 4/28/10 post discussing Icahn v LGF). Unfortunately, LGF is losing money, the Board is giving away money to management and the militia of advisors hired to thwart Icahn, and meantime, to prove a point, Icahn has lowered his bid to $6.50/share from $7/share previously. continue reading…
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A longtime shareholding on mine, Internet Initiative Japan (IIJI) (JP: 3774), is having its Annual Shareholder Meeting this Friday in Tokyo. I urge all ADR and Ordinary shareholders to submit their votes as soon as possible, but not later than this Thursday, 10:00 AM Eastern (NY) for ADR holders, or by Thursday, 11:59 PM Japan Standard Time for Ordinary shareholders. Also, please see my previous article detailing my activist work to-date with IIJ.
IIJ hit another 20-month high overnight in Tokyo, up 1.3% to ¥276,900 (ADR equiv. $7.65 at $1/¥90.5), although it traded as high as ¥288,900 in the afternoon session before giving back a good chunk of the gains into the market’s weak close. While IIJ’s stock has had a strong year, I remain convinced that its shares are still undervalued, due in some respects to management’s misuse of capital and the Board of Directors’ failure to unlock value, and in other respects primarily because of overly restrained IT spending in Japan. continue reading…
About 3 ½ months have passed since I sent my first letter and shareowner proposals in late-February to the Board of Directors of Internet Initiative Japan (IIJI) (JP: 3774), a leading ISP and related services (cloud computing, systems integration, etc.) in Japan. As a longtime shareholder (since 2006), my concerns included the company’s level of capital spending, its corresponding levels of depreciation, and its deteriorating returns on assets/equity/etc., the latter being partially suppressed by a large, low-yielding cash position. And my proposals involved items that a Board of Directors typically has more direct influence over (as opposed to my aforementioned concerns) such as stock splits, share repurchases, dividends, and shareholder say in significant non-core business investments. continue reading…
General Electric (GE) held its annual shareholder meeting on April 28th. It comes as no surprise that the same 16 directors up for reelection remain firmly in place. However, it should raise some eyebrows, since the number of shares voted against certain board members (most notably Messrs. Lafley and Penske) fell sharply compared to last year. Yet, in a fantasy land of GE proxy voting, it might not matter so much if shareholder (activist) Evelyn Davis, the “queen of the corporate jungle,” had garnered more votes for her perennial proposal for cumulative voting, which unfortunately and curiously saw a decline in support versus years prior. Back to reality, regardless of how many additional future votes there might be for cumulative voting, the board will likely not only continue to regard it as a closed matter since it was rejected, but it will also fail to acknowledge the importance of the proposal to a not insignificant number of shareholders. Ironically, even with a majority vote in favor of the proposal, the board is not required by law to do anything at all. continue reading…
Internet Initiative Japan (IIJI) (JP: 3774) is not a household name in the U.S., but it has carved out a niche in Japan in internet connectivity and related system services and outsourcing (essentially it is a high-tech ISP catering to businesses and government with growing potential in cloud computing and mobile access). Overnight in Tokyo it reported better-than-expected full-year earnings, forecast top and bottom-line growth in the current fiscal year ending next March (albeit on the soft/conservative side), hiked its dividend for the fiscal-year ended in March by 11% and is targeting an 11% hike for the current year’s dividend. IIJ surged in the afternoon session in Tokyo following its earnings release, reaching limit-up at ¥259,300 (ADR equivalent of $7.00) and closing at ¥245,000 ($6.61), compared its Nasdaq close $5.68 on Thursday. This is all good news, but it will likely get even better, much better, because IT investments in Japan have been largely held back, and IIJ’s board can take more of an initiative to enhance shareholder value, something for which I hope to be a catalyst. continue reading…
The Carl Icahn v. Lions Gate battle rages on. Unfortunately it features no real suspense; rather, it’s playing out more like a bad dream, in a bad movie. While the Post Office and the related parties’ legal counsel and financial advisers all must be happy to have the work, I’m strictly thinking TiVo: fast-forward past both sides’ rhetoric and “show me the money.” As a long-time Lions Gate shareholder, I of course agree with Lions Gate’s board and its advisor Perella Weinberg, that Mr. Icahn’s $7/share offer is financially “inadequate.” At the same time, I am as perplexed as Mr. Icahn is regarding Lions Gate’s “public relation machine’s” touting of its “horrible share performance as a tale of great success.” continue reading…
General Electric’s (GE: 15.3925 +1.60%) Annual Meeting of Shareholders is April 28th. All 16 of its directors are up for election, as well as the selection of the company’s independent auditor, and voting on 6 shareholder proposals. Please be sure to vote if you are a GE shareholder. And don’t simply accept the board’s recommendations because every board member will then be re-elected and every shareholder proposal rejected, which will likely happen anyway, but greater evidence of shareholder dissatisfaction could bring meaningful change. continue reading…
Internet Initiative Japan (IIJI) (3774) is a Japanese internet service provider offering a full suite of connectivity and outsourcing services. It is a pioneer among Japanese internet-related companies, having originally listed its shares on the Nasdaq in 1999, before eventually listing in Tokyo (Mothers) in 2005 and later transitioning to Topix 1st Section.
At the end of February, I submitted a letter to the company’s chairman (Mr. Suzuki) and its other directors. While applauding them for their prior decision to repurchase shares, the timing of which coincided with the bottoming of IIJ’s stock, and also for maintaining the dividend, I voiced some concerns and submitted proposals that are either to be actioned or designated for resolution at the Annual Shareholders’ Meeting this June. IIJ’s Investor Relations Officer has been helpful and cordial, and has already forwarded my letter and proposals. Below, I will briefly outline my position.
Unfortunately, despite having listed in the U.S., making it to Topix-1, and having a reasonable level of awareness within commerce and government in Japan, IIJ remains a largely unknown company in the investment community. Since I’ve been a shareholder for a while now I am not pleased about this, but it in fact represents an opportunity.
A cursory review of IIJ’s financials will show that the company met some hard times in 2008 (fiscal year-end March ‘09), as did most companies, but it remained profitable. However, given the weak economy in Japan and lingering deflation, 2009 (FYE 3/2010) is not looking as if it will be significantly better than 2008; that is, as revenues are forecast to be lower, although earnings are expected to rise about 20%, but still be only about a third of what they were between fiscal years 2006-2008. Meantime, IIJ is moving right along with capex, granted some of it is regarded as critical given the upgrade cycle of networking equipment. I have asked IIJ to review its capex/depreciation, while considering the models of Google and Amazon for cloud computing, an area, along with mobile connectivity, that represents great opportunity for the company.
One of my chief concerns relates to the level of capex and correspondingly, the heavy depreciation. Furthermore, the growth in assets, while it had led to top-line growth, it hasn’t brought an increase this year, and has not generated growth on the bottom-line for the past two years. To make matters worse, IIJ is sitting on a sizable pile of cash, nearly ¥8.5 billion ($94M) as of the most recent quarter’s end, compared to total assets of around ¥47 billion, and a market capitalization of around ¥40 billion (keep in mind that its shares are up about 25% in the past month). The company doesn’t have long-term debt, but it does utilize capital leases, which represent a “long-term” liability of ¥3.9 billion. IIJ has no working capital concerns whatsoever, and has access to very cheap bank lending facilities at a cost of capital under 2%.
My specific proposals involve:
I. A stock-split of the ordinary shares of at least 10:1, but preferably 100:1. Correspondingly, in light of the 400:1 ADR-to-Ordinary ratio and IIJ’s subsequent five-dollar per share ADSs, again I suggest a 100:1 ordinary split and a 1:4 ADR split. While stock splits don’t impact the fundamentals, they would most certainly help improve IIJ’s trading liquidity and improve its potential investor base.
II. Switch to a quarterly dividend payout schedule instead of biannually. I suggest this given it is common practice in the U.S. and the appreciation most shareholders will have for a more frequent payout.
II. Announce another stock buyback. I have already summarized IIJ’s cash position above. I regard IIJ as undervalued both based on a valuation of its assets and a return to at least the levels of profitability it achieved in the recent past. Use of cash for share repurchases is ideal considering IIJ’s recent low ROA (and ROE) and its foray into a non-core business (see below).
III. Allow shareholders to vote on any investment or acquisition in excess of ¥1 billion that does not involve IIJ’s core business related to internet connectivity and services. This proposal is prompted by its new ATM business. It has a majority stake in a business that places ATM’s in pachinko parlors (similar to how ATMs are placed in casinos). While this business may someday become profitable (I have asked for revenues/earnings guidance), it has accumulated losses to-date of over ¥1 billion, and it will need even more capital before all the thousands of ATMs are deployed.
One-year stock chart of IIJI:
Disclosure: The author owns shares of IIJ. Note this article does not constitute investment advice.
The latest and largest equity dilution — approx. $5.6B; 30% s/o — by Nomura (JP: 8604) (NMR: 5.63 +0.90%) has sent its shares down 16% to ¥573 in Tokyo ($6.35 at ¥90.3/$1) following an earlier rout in NY. I think the stock has further to fall, given that it was saved by its daily loss-limit (‘limit-down’) in Tokyo with volume of only 8.9 million shares. Volume thus far in September has ranged from a low of 17M shares traded to start the month, to a high of 65M last Friday.
At this point, the $5.6B it plans to raise over the next month would have been more than enough to have just acquired Lehman USA last year! Now the company and its shareholders face the challenge and risk of having to use the capital to expand existing U.S. operations and somehow grow some new business. Doing these things (profitably) has never been easy for Nomura, though it’s always been a dream of sorts.
Meantime, the stock is massively diluted, and unattractive at current levels due to the uncertainty of how effectively it will deploy the capital — it’s about 40% above its March low. While I agree with Goldman’s take that the capital raising is offensive, rather than defensive, in nature, I think it’s a little much. The Japanese business press does too, apparently, dubbing Nomura and the broader market’s sell-off the “Nomura shock.”
- No position in any companies mentioned.
The author’s intent is not to be misleading, but rather to be as frank as possible, regarding the longstanding debate of whether or not Japanese stocks are truly undervalued. In short, the answer is no. I no longer believe Japanese stocks are undervalued, not to the extent that I once did, and not to the lengths that some pundits and money managers try to make a case for. In fact, I would argue that Japanese stocks may best be described as being closer to fair value instead of being deeply undervalued. I mean Japanese stocks, for the foreseeable future, may be destined to be “undervalued” by traditional metrics, but fairly valued by the market and in relation to the economy. continue reading…
